Telangana High Court
M/S R.S. Agro Tech vs Union Of India on 26 June, 2024
*THE HON'BLE SRI JUSTICE SUJOY PAUL
AND
*THE HON'BLE SRI JUSTICE NAMAVARAPU
RAJESHWAR RAO
+WRIT PETITION No.925 of 2024
% 26-06-2024
#M/s.R.S.Agro Tech and others.
...Petitioners
vs.
$Union of India and others.
... Respondents
!Counsel for the Petitioners: Sri Avinash Deshai, Senior Counsel
representing Sri TPS Harsha.
^Counsel for Respondents: Ms. K. Mamatha, Standing Counsel for
Income Tax Department.
<Gist :
>Head Note :
? Cases referred
1. (1992) 194 2 ITR 32.
2. 2000 SCC OnLine Del. 92.
3. 2020 SCC OnLine Del. 424.
4. (2003) 260 ITR 249.
5. (1988) 170 ITR 592.
6. 2024 SCC OnLine Bom. 1319.
7. 1999 SCC OnLine Gau. 268.
8. (1997) 5 SCC 321.
9. (2015) 12 SCC 179.
10. (2022) 446 ITR 18.
11. AIR 1992 SC 1981.
12. (1986) 3 SCC 409.
13. 2024 SCC OnLine Jhar 451.
14. 2004 SCC OnlLine All 1769.
15. 2016 SCC OnLine Bom 15175.
2
SP, J & RRN,J
Wp_925_2024
IN THE HIGH COURT FOR THE STATE OF TELANGANA
HYDERABAD
****
Writ Petition No.925 OF 2024
(Per Hon'ble Sri Justice Sujoy Paul)
Between:
M/s.R.S.Agro Tech and others.
...Petitioners
vs.
Union of India and others.
... Respondents
JUDGMENT PRONOUNCED ON: 26.06.2024
THE HON'BLE SRI JUSTICE SUJOY PAUL
THE HON'BLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? :
2. Whether the copies of judgment may be
Marked to Law Reporters/Journals? :
3. Whether His Lordship wishes to
see the fair copy of the Judgment? :
___________________
SUJOY PAUL, J
_____________________________________
NAMAVARAPU RAJESHWAR RAO, J
3
SP, J & RRN,J
Wp_925_2024
THE HONOURABLE SRI JUSTICE SUJOY PAUL
AND
THE HONOURABLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
WRIT PETITION No.925 of 2024
ORDER:
(per Hon'ble SP,J)
The petitioners have called in question the legality and
validity and propriety of the action taken by the respondents for
search and seizure in purported exercise of power under Section
132 of the Income Tax Act, 1961 (for short, the Act).
Factual background:
2. The petitioners are engaged in running cotton ginning mills
situated at Godavalli Village, Asifabad Mandal, Kumarambheem
Asifabad District, which were set up in the year 2015. The
petitioners stated that they are law abiding bodies/persons and
promptly filing returns and making statutory payments under
Goods and Services Tax and other Taxes. The Ministry of
Finance, Government of India, had issued 'certificates of
appreciation' which are filed by the petitioners.
3. In order to run the cotton ginning mills smoothly, the
petitioners are required to frequently purchase cotton produce
from the farmers. In procuring the cotton from the farmers, the
petitioners make payments in cash which is due to the area or
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location in which the petitioners operate. Such rural areas are
lacking necessary infrastructure including fully developed
banking and internet facilities. In particular, the areas in which
the petitioners operate are located in proximity to Maharashtra
and in these areas, transactions are predominantly made
through cash mode of payment. The reliance is placed on
document provided by bank management which shows limits
have been placed on the quantum of cash which can be kept in
the bank chest i.e., upto Rs.13,00,000/-. In this event, the
petitioners are often required to make request in advance for
withdrawal of large cash amount to enable the bank to arrange
for the disbursal and transport of cash. If the cash which is
beyond the limit of amount available in the concerned bank is
required, the said branch needs to get the cash transported via
van services of the bank from Mancherial branch to Asifabad
branch of the bank. The distance between Asifabad and
Mancherial is approximately is 70 kilometers.
4. In view of foregoing difficulties and prospect of being cash
strapped in the peak season, the petitioners make arrangement
to meet any possible shortage of cash during the closure of the
bank. Thus, the petitioners utilised their overdraft facility during
14th November, 2023 to 16th November, 2023 and withdrew
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substantial amount (by self-cheques) with interest rate and other
charges adding upto 12% per annum. On that basis, the
petitioners made purchases by paying cash amounts to the
farmers and made necessary expenditures. As on 20.11.2023,
the petitioners were left with cash amount of Rs.6,51,70,000/-.
The copies of the receipts showing payments to farmers are
cumulatively filed as Annexures-P.11 and P.12.
5. In the early morning of 21.11.2023, the respondents
conducted search proceedings at the residence of Managing
Partner of petitioner No.1 and at the offices of M/s.R.S.Agrotech
and M/s.Heena Industries, the petitioners herein. The search
exercises were conducted pursuant to separate warrants of
authorisation issued under Section 132 of the Act, dated
20.11.2020. It is stated that in the authorisation warrants, no
reasons to conduct the search and consequent seizure were
mentioned. The petitioners preferred representations to
respondent No.2 on 04.12.2023 (Annexure P.15) and 05.12.2023
(Annexure P.16) for return of cash seized by them.
Contentions of the petitioners:
6. Sri Avinash Desai, learned Senior Counsel for the
petitioners, urged that the aforesaid factual matrix makes it clear
that the petitioners have borrowed money in order to utilise the
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same in their business. The search and seizure in the instant
case is illegal and runs contrary to the manner and method
prescribed under Section 132 of the Act. The result of seizure of
amount is that on the one hand, the petitioners are not able to
utilise the cash to purchase the cotton and run their business
smoothly and on the other hand, they are required to pay interest
to the bank. This may ruin their business.
7. The petitioners placed heavy reliance on the language
employed in Section 132 of the Act by contending that the action
of the respondents reflects non-application of mind. The
respondents failed to disclose availability of any material with
them prior to the search and seizure exercise. The respondents
had no reasons to believe that the cash amounts were
unaccounted and the petitioners will not deposit tax in due
course.
8. The antecedents of the petitioners were evinced from
various returns filed over last several years and that background
nowhere suggests that the petitioners would not disclose either
whole or partly about the income. The exercise of seizure is
based on mere suspicion and there is no direct correlation
between the existence of information or material and the opinion
formed by the authorities before authorising any seizure under
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the Act. The emphasis is laid on words "reasons to believe" used
under Section 132 (1) of the Act to bolster the submission that
this expression has a definite meaning and cannot be used based
on mere suspicion. In absence of any incriminating material
available prior to the seizure of the cash amount shows complete
non-application of mind by the respondents.
9. The next limb of argument is that the alleged inability to
provide explanation regarding the cash amount does not satisfy
the condition precedent under Section 132(1) authorising search
and seizure. The respondents have illegally conducted the search
and seizure which runs contrary to law laid down by various High
Courts.
10. By relying upon the judgments of Delhi High Court in L.R.
Gupta v. Union of India 1, Ajit Jain v. Union of India 2 and
Khem Chand Mukim v. PDIT 3, he submitted that the condition
precedent for exercising power under Section 132(1) of the Act, (i)
the information must be in the possession of the named authority
and (ii) in consequence of which, he may have reason to believe
that the person concerned is in possession of money, bullion, etc.
If either of these conditions are missing, the power under Section
(1992) 194 2 ITR 32
2000 SCC OnLine Del. 92
2020 SCC OnLine Del. 424
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132 of the Act cannot be invoked. Mere possession of any
amount by the petitioners could hardly be said to constitute an
information which could be treated as sufficient by a reasonable
person. Even if sole ground for search is an information gathered
from investigation wing of Income Tax Department founded upon
mere repetition of words and without clear basis, conclusion or
satisfaction note does not fall within the ambit of "reasonable
belief".
11. For the same purpose, the learned Senior Counsel placed
reliance on the judgment of the Allahabad High Court in
Dr.Sushil Rastogi v. Director of Investigations, Income Tax 4
and Dr.Nand Lal Tahiliani v. Commissioner of Income Tax 5.
He has relied upon the judgment of the Bombay High Court in
Echjay Industries Pvt. Ltd. V. Rajendra 6 to submit that any
information which is extremely general in nature cannot be
formed basis of "reason to believe". The judgment of Gauhati
High Court in B.R. Metal Ltd. V. Commissioner of Income
Tax 7 is pressed into service to contend that cash found appeared
to be undisclosed is a clear case of suspicion which cannot
become reason for initiating action under Section 132 of the Act.
(2003) 260 ITR 249
(1988) 170 ITR 592
2024 SCC OnLine Bom. 1319
1999 SCC OnLine Gau. 268
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12. Lastly, the petitioners relied on the judgments of the Apex
Court in CIT v. Vindhya Metal Corpn. 8, DGIT v. Spacewood
Furnishers (P) Ltd. 9 and a recent judgment of the Apex Court in
Principal DIT (Invest.) v. Laljibhai Kanjibhai Mandalia 10.
13. Another limb of argument is that the respondents should
have returned cash to the petitioners. The petitioners by
preferring applications dated 04.12.2023 and 05.12.2023
(Annexures P.15 and P.16) prayed for returning the cash, but the
respondents failed to complete their exercise within the statutory
time limit. Thus, they are bound to return the said amount. The
petitioners are even ready to furnish appropriate bank guarantee
so that interest of the Department will be protected, and at the
same time, the petitioners will be able to run their business.
Stand of the Revenue:-
14. Ms. K. Mamatha, learned counsel for the Revenue,
supported the impugned action and by taking this Court to
sub-sections of Section 132 of the Act submitted that the
Revenue has ample power to undertake search and seizure. The
seizure has taken place inconsonance with statutory mandate. It
is submitted that the respondents in the counter are not
(1997) 5 SCC 321
(2015) 12 SCC 179
(2022) 446 ITR 18
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expected to spell out the actual reasons which formed basis for
search, instead, the respondents are obliged to give that
confidential information in a sealed cover to this Court.
Confidentiality and sensitivity are hallmarks of proceedings
under Sections 132 and 132-A of the Act. To buttress, this
contention, reliance is placed on the Finance Bill, 2017, which
ultimately became part of statute book. As per the amendment
which took place, the basis for 'reasons to believe' need not be
disclosed to any person or any authorities, even to the appellate
authority. Interestingly, she also placed reliance on the
judgment of the Apex Court in the case of Laljibhai Kanjibhai
Mandalia (supra). By placing reliance on the recent Coordinate
Bench order dated 21.06.2024, it is argued that the assessee in
that case was habitual violator and in the facts of that case, the
Court declined interference. It is urged that no case is made out
for interference.
15. During the hearing, in obedience of previous orders of this
Court "satisfaction note" is placed before us in a sealed cover.
Findings:
16. It is apt to refer to relevant part of Section 132 (1) of the Act
which reads as under:
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"132. Search and seizure.--
(1) Where the Principal Director General or Director General
or Principal Director or Director or the Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner or Additional Director or
Additional Commissioner or Joint Director or Joint
Commissioner in consequence of information in his
possession, has reason to believe that--
(a) any person to whom a summons under sub-section (1) of
section 37 of the Indian Income-tax Act, 1922 (11 of 1922),
or under sub-section (1) of section 131 of this Act, or a
notice under sub-section (4) of section 22 of the Indian
Income-tax Act, 1922, or under sub-section (1) of section
142 of this Act was issued to produce, or cause to be
produced, any books of account or other documents has
omitted or failed to produce, or cause to be produced, such
books of account or other documents as required by such
summons or notice, or
(b) any person to whom a summons or notice as aforesaid
has been or might be issued will not, or would not, produce
or cause to be produced, any books of account or other
documents which will be useful for, or relevant to, any
proceeding under the Indian Income-tax Act, 1922 (11 of
1922), or under this Act, or
(c) any person is in possession of any money, bullion,
jewellery or other valuable article or thing and such money,
bullion, jewellery or other valuable article or thing
represents either wholly or partly income or property
11[which has not been, or would not be, disclosed] for the
purposes of the Indian Income-tax Act, 1922 (11 of 1922),
or this Act (hereinafter in this section referred to as the
undisclosed income or property),"
(Emphasis Supplied)
17. The plain language of the Sub-section (1) of Section 132
shows that the competent authority must be equipped with
information or in other words, the information must be in his
possession on the strength of which he had reason to believe that
the conditions mentioned in clauses a, b and c of Sub-section (1)
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may exist. The language of statute is plain and unambiguous.
Thus, it must be given effect to irrespective of consequences {see
Nelson Motis vs. Union of India 11}.
18. Learned counsel for both sides relied on various judgments
wherein the expression 'reason to believe' has been considered
and also the requirement and character of information which
became subject-matter of judicial pronouncements.
19. The Apex Court, way back in Vindhya Metal Corpn.
(supra), held that the scrutiny should be on the information in
possession of the Commissioner in order to see whether a
reasonable person could have entertained a belief that amount in
possession of the assessee would not have been disclosed by him
for the purposes of the Act.
20. In the case of Spacewood Furnishers (P) Ltd. (supra), the
Apex Court culled out the principles on which the validity of
exercise of search and seizure can be tested. The relevant portion
reads as under:
"8. The principles that can be deduced from the aforesaid
decisions of this Court which continue to hold the field
without any departure may be authorized as follows:
8.1. The authority must have information in its
possession on the basis of which a reasonable belief can
be founded that--
AIR 1992 SC 1981
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(a) the person concerned has omitted or failed to produce
books of account or other documents for production of
which summons or notice had been issued
Or
such person will not produce such books of account or
other documents even if summons or notice is issued to
him
Or
(b) such person is in possession of any money, bullion,
jewellery or other valuable article which represents either
wholly or partly income or property which has not been or
would not be disclosed.
8.2. Such information must be in possession of the
authorized official before the opinion is formed.
8.3. There must be application of mind to the material
and the formation of opinion must be honest and bona
fide. Consideration of any extraneous or irrelevant
material will vitiate the belief/satisfaction.
8.4. Though Rule 112(2) of the Income Tax Rules which
specifically prescribed the necessity of recording of reasons
before issuing a warrant of authorized13on had been
repealed on and from 1-10-1975 the reasons for the belief
found should be recorded.
8.5. The reasons, however, need not be communicated to
the person against whom the warrant is issued at that
stage.
8.6. Such reasons, however, may have to be placed
before the Court in the event of a challenge to
formation of the belief of the authorized official in
which event the court (exercising jurisdiction under
Article 226) would be entitled to examine the relevance
of the reasons for the formation of the belief though not
the sufficiency or adequacy thereof."
(Emphasis Supplied)
21. In Laljibhai Kanjibhai Mandalia (supra), the Apex Court
again made some principles which are as under:
"33. We would like to restate and elaborate the principles in
exercising the writ jurisdiction in the matter of search and
seizure under Section 132 of the Act as follows:
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i) The formation of opinion and the reasons to believe
recorded is not a judicial or quasi-judicial function but
administrative in character;
ii) The information must be in possession of the 14uthorized
official on the basis of the material and that the formation of
opinion must be honest and bona fide. It cannot be merely
pretence.
Consideration of any extraneous or irrelevant material would
vitiate the belief/satisfaction;
iii) The authority must have information in its possession
on the basis of which a reasonable belief can be founded
that the person concerned has omitted or failed to
produce books of accounts or other documents for
production of which summons or notice had been issued,
or such person will not produce such books of accounts
or other documents even if summons or notice is issued
to him; or
iv) Such person is in possession of any money, bullion,
jewellery or other valuable article which represents either
wholly or partly income or property which has not been or
would not be disclosed;
v) Such reasons may have to be placed before the High
Court in the event of a challenge to formation of the belief of
the competent authority in which event the Court would be
entitled to examine the reasons for the formation of the
belief, though not the sufficiency or adequacy thereof. In
other words, the Court will examine whether the reasons
recorded are actuated by mala fides or on a mere pretence
and that no extraneous or irrelevant material has been
considered;
vi) Such reasons forming part of the satisfaction note are to
satisfy the judicial consciousness of the Court and any
part of such satisfaction note is not to be made part of the
order;
vii) The question as to whether such reasons are adequate or
not is not a matter for the Court to review in a writ petition.
The sufficiency of the grounds which induced the competent
authority to act is not a justiciable issue;
viii) The relevance of the reasons for the formation of the
belief is to be tested by the judicial restraint as in
administrative action as the Court does not sit as a Court of
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appeal but merely reviews the manner in which the decision
was made. The Court shall not examine the sufficiency or
adequacy thereof;
ix) In terms of the explanation inserted by the Finance Act,
2017 with retrospective effect from 1.4.1962, such reasons to
believe as recorded by income tax authorities are not
required to be disclosed to any person or any authority
or the Appellate Tribunal."
(Emphasis Supplied)
22. In view of "litmus test" laid down in the aforesaid
judgments, "satisfaction note" is to be tested. In view of element
of confidentiality involved, we are not reproducing any portion of
the satisfaction note.
23. We have gone through the said note carefully. The
'satisfaction note' talks about discrete enquiry, but no such
material relating to discrete enquiry and information gathered
thereupon became part of the 'satisfaction note'. Thus, nature
and character of information cannot be gathered from perusal of
the 'satisfaction note' which ultimately became reason for
recording "satisfaction". In both the judgments of Spacewood
Furnishers (P) Ltd. (supra) and Laljibhai Kanjibhai Mandalia
(supra), it was held that the authority must have information in
its possession on the basis of which a reasonable belief can be
formed.
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24. The 'satisfaction note' nowhere reflects the basis to derive a
satisfaction that the petitioners who were in possession of money
will not disclose the same in due course. The petitioners, as
noticed, received appreciation certificates for their prompt
payment of the taxes. The 'satisfaction' cannot be recorded
merely because the authority is of the opinion that the true
financial affairs will never be revealed unless search seizure
operation is carried out.
25. In catena of judgments, the Apex Court opined that
"reasons to believe" cannot be equated with "reasons to suspect".
Thus, the competent authority must be equipped with some
cogent incriminating material prior to the seizure on the strength
of which a satisfaction can be recorded. The said satisfaction
neither can be tested on suspicion nor can be justified on the
basis of unexplained possession of amount. In the instant case,
we are constrained to observe that satisfaction note is based on
suspicion and is not pregnant with any cogent incriminating
material which can form basis for an action under Section 132 of
the Act {see Indian Oil Corpn. v. ITO 12, Pasari Casting &
Rolling Mills (P) Ltd. v. ITD 13, Anita Sahai v. Director of
(1986) 3 SCC 409
2024 SCC OnLine Jhar 451
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Income-Tax (Investigation) 14 and M/S Coronation Agro
Industries Ltd. v. Deputy Commissioner of Income Tax
Circle 15}.
26. We will be failing in our duty if the Division Bench
judgment cited by the learned counsel for the respondents is not
considered. In W.P.No.11667 of 2021, the interference was
declined because after opening the sealed cover provided by the
Income Tax Department, and on perusal of the record, the Court
opined that preliminary search and subsequent proceedings were
in accordance with law. Thus, the said finding is based on the
record of the said case, and therefore, this order is of no
assistance to the respondents in the present case.
27. In view of foregoing discussion, the impugned action of the
respondents in seizing and withholding Rs.6,51,00,000/- cannot
be countenanced. Resultantly, the impugned search and seizure
is set aside. The said amount be returned to the petitioners
forthwith. However, it is made clear that this order will not come
in the way of the respondents to proceed against the petitioners
in accordance with law.
2004 SCC OnlLine All 1769
2016 SCC OnLine Bom 15175
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28. The Writ Petition is allowed to the extent indicated above.
There shall be no order as to costs. Miscellaneous applications
pending, if any, shall stand closed.
________________
SUJOY PAUL, J
_____________________________________
NAMAVARAPU RAJESHWAR RAO, J
Date: 26.06.2024
Note: L.R. marked.
B/o. TJMR
Note: The I.T. Dept. had
handed over a sealed
cover containing the
original records. After
perusal, the same was
again sealed and handed
over to the learned
Standing Counsel for the
I.T. Department.
